What is a credit card?
A credit card is a thin, rectangular piece of plastic or metal issued by financial institutions, which allows you to spend money from a pre-approved limit to pay for your transactions at online and offline merchants. . The card-issuing institution determines the limit based on your profile, income and credit history.
How does a credit card work?
In the credit card chain, the most important link is the consumer, that is, you. Therefore, it is essential to be fully aware of all facets surrounding card selection and use, and we will cover these aspects later. However, it is equally important to be somewhat familiar with “what lies beneath”.
Besides the cardholder, there are four main players in the value chain.
1. Issuing banks: Almost all banks (and recently, a few neobanks) issue credit cards. From a banking perspective, this is the beginning of the customer lifecycle.
2. Payment Processing Networks: Connect banks/merchants/customers and enable seamless settlement of transactions, e.g. Visa, Mastercard, Diners, RuPay. Their core competency lies in the effective maintenance and operation of an enabling technical capability 24/7, on a global scale.
3. Merchants: Hotels, airlines, malls, online shopping, gas pumps and all the points where you would use the card. The acquiring bank installs an electronic data capture (EDC) machine in these outlets. When you make a purchase, the merchant swipes your plastic and receives real-time authorization to complete the transaction.
4. Acquisition of banks: Place their EDC machines at points of sale, that is to say at merchants. It is possible that you are using an HDFC card (issuer) in an outlet that has an Axis Bank EDC machine (acquirer). Switching is facilitated by a network, say Visa. This applies to domestic or international transactions. The acquiring bank is the entity that ensures that the merchant collects their dues according to a pre-established schedule.
How to use a credit card wisely and make the most of profits?
With dozens of credit card companies vying for attention in one of the world’s largest consumer markets, choosing the right card for your needs can be daunting. From SBI to HDFC and Citibank to HSBC, each card issuer has its own list of benefits and return-to-value offers. Scholarly navigation is therefore a confusing journey.
For explicit details, see our in-depth guide to using a credit card.
How to get a credit card for the first time?
Putting a credit card in your wallet can be financially liberating. With pre-approved credit limits, 40-50 days of interest-free credit, and value-added transaction benefits like cash back, rewards, and more, there are plenty of benefits to owning a credit card. .
For explicit details, please read how to get a credit card for the first time.